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Thursday, April 22, 2010

Additional notes while prepaing Final Accounts

Any reserves or fund account given in the in the trial balance should be shown in the balance sheet only.

Any transfer to Employees Provident Fund and other Staff Welfare Fund like pension fund should be debited to P/L account as a charge to profit rather than an appropriation and shown in the balance sheet as "Provision".

Declaration of dividend at a certain percentage should be calculated on the paid up capital.

Premium paid on redemption of preference share should be written off against the existing share premium account. In its absence, the profit and loss account should be debited.

Investment should be shown at cost price.

Interest on investment should be calculated on face value of investment.

No dividend is paid on calls in advance and call-in-arrears.

In case of the transfer of amount from reserve or funds to P/: appropriation account i.e., withdrawl of reserve, should be shown in credit side of P/L Appropriation Account.

In case of preference and equity shares, only proposal to pay dividend on preference shares is made before making any proposal for equity dividend.

Provision for tax of current year may be shown in P/L Appropriation Account.

Tax paid in the current year represents either tax paid of previous year or advance (prepaid) tax paid of current year.

Finished goods must always be valued at the lowest of the cost, or replacement or market price. However, raw materials and stores are valued at cost price.

Domestic and household expenses of proprietor as rent for the dwelling house, drawing etc, are not debited to the profit and loss account and they should be debited to the capital account.

Income tax paid by the proprietor on his income is also his private expense and should not be debited to the profit and loss account and should be debited to capital account. (The treatment is different in case of the final account of company).